It hasn’t really been a good week for crypto investors, as the massive drop caused Bitcoin to lose 30% of its value quickly. The coin that was trading in the $50,000 to $60,000 range fell to the $40,000 level in a few hours.
As expected of such a drastic drop for Bitcoin, altcoins were also hit hard and some altcoins more than doubled their losses as some dropped 40-50% in value over the same period.
The price drop was made worse by over $2.4 billion in futures positions being liquidated in just 1 hour of which $600 million was in BTC futures.
This hasn’t been a good week for many markets other than crypto as stocks have seen a noticeable drop in price last week. Investor fatigue and lethargy culminate when every time the market tries to recover, there is immediately a new bad news that will drag the market lower.
First, Fed Chair Powell’s testimony before the US Senate on Tuesday started the decline as he mentioned that it was time to remove the word “transient” from inflation expectations and that they could end. the purchase of the property earlier than previously announced.
Things got worse on Wednesday after the US discovered its first case of Omicron, and then the nail in the coffin appeared on Friday after the payroll report was missed.
Nonfarm payrolls increased by just 210,000 in November, after rising 546,000 the previous month. The published figure was much lower than Wall Street’s expectations of 573,000, which worried many traders. With the labor market weakening, a new COVID variant and the Fed tightening.
With the economy showing signs of slowing and a new COVID variant emerging around the world, Oil continued its slippery slope, dropping another 5.7% to $66 before opening the week back up again. more than 2% to 67.50 USD.
Gold was unchanged while Silver played an industrial metal role, falling 3% to $22.50. The CBOE Volatility Index (VIX), which continues to rise on rising concerns, ended the week at 30.67. At the height of COVID fears when the market sold off sharply last March, the VIX was at 66.
The Dow fell 0.9% for the week despite a 600-point gain on Thursday, the S&P 500 fell 1.2% and the Nasdaq lost 2.6%.
Crypto had a bloody Saturday
As mentioned, the situation is markedly worse in the crypto-asset class, with BTC losing its bid late last week, breaking the $50,000 mark and dropping more than 20% to as low as $40,500. early last Saturday. The altcoin bloodbath was slightly worse, with the worst drop being almost 50% in a 24-hour period.
On an hourly basis, the plunge looks worse, as BTC lost $10,000 within an hour early Saturday to see lows hit $40,500 on several exchanges, while ETH dropped to as low as $3,100. The amount of liquidation in the hour of bloodshed is enormous by today’s standards. More than $2.4 billion worth of positions were liquidated within just 1 hour, with $600 million going into BTC futures. The total amount of long-term liquidation adds up to more than 1.3 billion USD.
Around 4,000 BTC were rumored to be sold in that 1-hour period, which sent the market down dramatically, with 1,500 BTC alone being sold in less than a minute at the time of the worst drop.
On a 24-hour basis, the numbers aren’t any better. Over $5.4 billion has been lost in the BTC futures market, or about 25% open interest (OI). Open interest for BTC Futures fell from $22 billion to $16.6 billion in just one day.
Positive news nothing as BTC Supply has been sold
The crypto space has seen some positive developments during the week; however, they did nothing to prevent the price from plunging on Friday and early Saturday.
MicroStrategy announced that it purchased another 7,002 BTC for $414.4 million, with an average price of around $59,187. As of November 29, 2021, MicroStrategy has acquired approximately 121,044 BTC for about $3.57 billion, with an average price of about $29,534 per BTC.
Fidelity has also announced that it has launched a spot BTC ETF in Canada.
Facebook announced on Wednesday that it will be reversing a ban on crypto ads on its platform, which could help raise awareness of crypto among non-crypto users.
El Salvador claims that it bought 150 bitcoins at an average price of $48,670 during the drop, and similarly, Tron Founder Justin Sun said he bought 100 BTC during the drop.
BTC balances on exchanges have severe warning
BTC data has started to show signs of an impending drop as all BTC exchange reserves saw a spike in the middle of last week after the data This has been declining since August. The exchanges saw an outflow of more than 15,000 BTC in the days prior to the crash.
A close-up version of the exchange’s outflow with the ensuing near-vertical drop in BTC price is shown below.
While preliminary data shows that not all 15,000 BTC were sold, following the sell-off, the Output Spending Ratio (SOPR) for short-term BTC holders fell to 0.99. SOPR 0.8 is generally considered a great buying opportunity.
However, no one knows for sure if the ratio will actually drop to 0.8 this time or if we have seen a local low, as BTC funding rates have dropped significantly after the sell-off, implying that the traders are extremely bearish; usually a reaction indicator.
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Options Traders Trap ETH with False Bull
ETH reserves on exchanges continued to decline in December, while the amount of ETH locked in smart contracts continued to move sideways after peaking in October. These two indicators are painting a picture. mixed picture regarding investor appetite on ETH. While investors are buying and removing ETH from exchanges, they are not necessarily putting them to use in apps, meaning these could just be investors buying ETH to raise. prices instead of using it on DeFi, which may imply that they are only short-term buyers.
Based on the development of TVL on Layer 2 built on ETH, hot money may have bought ETH as traders bet that L2 scaling solutions can solve the problem of high gas fees that ETH encountered. The nearness to the Consolidation date when ETH becomes fully PoS has also boosted sentiment, sending ETH price rallying close to $4,800 at the start of the week.
With the sharp increase in price, Open Interest on ETH Options skyrocketed, creating a new ATH level. The largest option delivery date for this month is December 31. A total of 689,653 options will expire, with 469,486 calls and 220,167 puts.
The largest number of calls with a strike price of $5000.
Usually, such sudden over-enthusiasm doesn’t end well. Indeed, the price of ETH fell alongside BTC over the weekend, dropping prodigiously to as low as $3,100. If the ETH price doesn’t hit $5,000 by the end of this month, those options will expire worthless and their buyers will lose all of their money. However, it is still too early to declare these options worthless as there are still 4 weeks left until the end of December. Overall, ETH has recovered very strongly from the sell-off as low as $3,100 back. over $4,000.
In addition to ETH, several other altcoins such as LUNA also show incredible resilience. One such coin is LUNA, which bounced back to create a new ATH of $78.20 after it bounced significantly from a sell-off as low as $30. TVL on Terra Blockchain where LUNA is the native token has surged about 43% in the past week to new ATHs, surpassing AVAX and SOL to place third behind BSC.
US and Korean traders continue to shop
US and South Korean buyers appear to be major contributors to the market rally, as the price premium on Coinbase and Korean exchanges is growing rapidly relative to the rest of the exchanges. other translation. With the Greed and Fear Index having dropped to the extreme fear level of 18, this could indeed be a great buying opportunity. Leverage removals like this are not uncommon in a crypto bull market, and experienced traders sometimes use the opportunity to load up on their long time horizons.
The 2017 bull market saw six massive price drops of more than 30% before regrouping into six new ATHs respectively afterward. Hence, while this weekend’s bloodbath may seem drastic for some traders, it is nothing new for the crypto markets.
While cryptocurrencies managed to pull off some recovery over the weekend when the traditional markets closed, the real test of their resilience will come when the stock markets open. With Asian stock markets opening lower, altcoins have started to drop quite a bit. The fate of cryptocurrencies this week may depend on how the US stock market reacts.